Excerpt:(i) excise - manufacturer - central excise rules, 1944 and section 2 (f) of central excises and salt act, 1944 - whether petitioners manufacturers of cotton fabrics as defined under act of 1944 and rules of 1944 - petitioners got cotton fabrics manufactured by entering into contract with society - 'manufacturer' not only include one who employs hired labour but also who engages in production or manufacture as per section 2 (f) - section 2 (f) includes person who does not himself employ labour but engages himself in production or manufacture of goods through independent contractor - held, petitioners be regarded as manufacturer within section 2 (f).
(ii) penalty - rules 9 (1) and 9 (2) of central excise rules, 1944 and article 19 (1) (f) of constitution of india - whether rule 9 (2).....shelat, c.j.(1) the common questions arise in this case and the following petitions nos. 752 of 1961, 1054 of 1963, 639 of 1963 and 917 of 1963 and therefore, it would be expedient to have disposed of together. in the last three petitions nos. 1054 of 1963, 639 and 917 of 1963 however, some additional questions are raised and therefore, they will have to be dealt with separately. the two questions that are common to all these petitions are (1) whether the petitioners are manufacturers of cotton fabrics as defined in the central excise and salt act, 1944 and the rules made thereunder, and (2) even if they are so, whether the cotton fabrics in question which they are said to have manufactured or got manufactured, attract the provisions of rules 7 and 9 of these rules or whether they enjoy.....

Judgment:

Shelat, C.J.

(1) The common questions arise in this case and the following petitions Nos. 752 of 1961, 1054 of 1963, 639 of 1963 and 917 of 1963 and therefore, it would be expedient to have disposed of together. In the last three petitions Nos. 1054 of 1963, 639 and 917 of 1963 however, some additional questions are raised and therefore, they will have to be dealt with separately. The two questions that are common to all these petitions are (1) whether the petitioners are manufacturers of cotton fabrics as defined in the Central Excise and Salt Act, 1944 and the rules made thereunder, and (2) even if they are so, whether the cotton fabrics in question which they are said to have manufactured or got manufactured, attract the provisions of Rules 7 and 9 of these rules or whether they enjoy exemption granted under the notification issued by the Central Government under Rule 8 of those rules

No. 751 of 1961

(2) In this petition, we are concerned with Tarun Trading Co., a proprietary concern carrying on business as wholesale dealers in cotton textiles and of which the petitioner is the sole proprietor. According to the petition, an oral agreement was arrived at between the Ankleshwar Handloom Weavers Co-operative Purchaser Society Ltd., Ankleshwar (hereinafter referred to as the society) whereunder, the society agreed to supply power-loom cloth according to the varieties required by the petitioner. Under the agreement, it was agreed that the petitioner should pay the cost for yarn which the society would purchase from Messrs. Manoj Textile Mills, such payments being on behalf of the society, and the society was to supply cloth to the petitioner by adding to the cost of the yarn, what in the petition are called, manufacturing charges which included reasonable profits of the society. These charges were Rs. 0-2-3, Rs. 0-2-9 and Rs. 0-3-3 per yard, depending upon which of the three varieties bearing Nos. 4055, 6052 and 7060 was made and sold to the petitioner by the society.

(3) Between September 12, 1960 and December 31, 1960 the society supplied 71,638 linear yards of power-loom cloth of the total value of Rs.55, 781/- to the petitioner. This cloth, as aforesaid, was manufactured out of yarn purchased from Messrs Manoj Textile Mills and for which the price as alleged in the petition was paid by the petitioner on behalf of the society. According to the petition, the petitioner was the purchaser of the goods and it was the society which was the manufacturer. The society being a co-operative society, was exempt from payment of excise duty under the notification dated April 30, 1960 issued by the Central Government under Rule 8 and it was the case of the petitioner that no duty was recoverable on the said goods sold by the society and purchased by him.

(4) The society was registered in February 1948 under the Bombay Co-operative Societies Act, 1925, and was composed of members who were the owners of power-looms. The practice followed by the society was that the society would collect orders, then supply yarn to its members and the members would manufacture cloth out of such yarn on their looms, employing in their turn weavers to whom they would pay weaving charges. The society in its turn would pay to its members weaving charges. The society then would sell the cloth so manufactured at rates fixed after taking into account the weaving charges paid by it to its members, certain administrative expenses and other charges such as packing, transport, etc., and reasonable profits. The petitioner's case was that the bills of sale issued by the society came to Rs.55,781/- which included the cost of yarn purchased by the society from Messrs Manoj Textile Mills together with weaving charges, other charges and profits all of which were valued in the rates above mentioned, though in fact the petitioner had already paid to Messrs Manoj Textile Mills the price of the yarn on behalf of the society.

(5) It would seem that the excise authorities started investigation into transactions of this kind entered into by such societies and, in the course of their investigation, they recorded on January 25, 1961 the statement of Indravadan Ishwarlal Shah who gave his statement on behalf of the petitioner who was said to be out of Ahmedabad at the time. On or about January 29, 1961 the petitioner confirmed that statement, stating that Indravadan Shah was authorised by him to make that statement and that he would abide by it. On May 10, 1961 the Department issued a show cause notice why duty amounting to Rs.34,727-10 nP. and penalty should not be recovered from the petitioner under Rule 9(2) of the said rules. On May 19, 1961 the petitioner gave his written explanation and after a personal hearing was given to him the Deputy Collector, Central Exercise, the respondent herein, passed his order dated September 11, 1961, calling upon the petitioner to pay Rs.34,727-10 Np. as duty and a penalty of Rs.750/- in respect of the said cotton fabrics supplied as aforesaid by the society to the petitioner.

(6) It is an admitted fact Messrs Manoj Textile Mills consist of four partners, namely, the said Indravadan Shah and his three brothers and that Vijay Trading Co., which is the petitioner in Petition No.752 of 1961, consisted of two partners, namely, the said Indravadan Shah and his brother. It is not in dispute that the said Indravadan Shah principally managed the two concerns. It is also an admitted fact that Tarun Trading Co. carried on business in the same premises and that the said Indravadan Shah used to manage the business of Tarun Trading Co. in the absence of its proprietor. The interest taken by Indravadan Shah in Tarun Trading Co. was such that, as observed above, he was even authorised to make a statement on behalf of Tarun Trading Co., though as the endorsement of its proprietor Jamnadas Desai shows, he was absent only at the most for about four days. Therefore, when the Department asked for a statement, Indravadan Shah could well have told them that the proprietor was absent and that if the Department desired any statement, it could be recorded on his arrival. But, as already seen, he did not do so and presumably because he was conversant with the transactions in question, he did not wait for the arrival of the proprietor and gave his statement on behalf of Tarun Trading Co. These facts indicate that there was justification in the contention of the learned Advocate General that Indravadan Shah, to say the least, took considerable interest in the transactions of the petitioner. This conclusion is also reflected in the statement of account furnished to the Department by Tarun Trading Co. That statement shows that a sum of Rs.17, 039/- paid by Vijay Trading Co. to or on behalf of the society, was adjusted by means of a Havala entry dated October 31, 1960, by crediting that amount to Tarun Trading Co. against the sum of Rs.55,781-29 Np. being the sale price of the goods supplied by the society to Tarun Trading Co. and allegedly due to the society. There is, therefore, force in the contention that these three concerns had common interest with each other and Indravadan Shah, if not actually managing them all, had interest in at least two of them and was taking part in the management of the third, namely, Tarun Trading Co. According to the statement off account produced before the respondent, Rs.39,245-66 Np. only were paid against the sale price of Rs.55,781-29 Np. between October 31, 1960 and December 31, 1960. Out of the amount of Rs.39,245/-, Rs.17,039-66Np. Were credited to Tarun Trading Co. by means of an adjustment entry. The balance of Rs.22,000/- and odd was not directly paid to the society as seen from the statement of account dated November 12, 1960 produced by Indravadan Shah along with a letter dated November, 19, 1960, admittedly written by him on behalf of Tarun Trading Co. to the society. That statement shows that in respect of 47, 432 yards of cloth supplied to the petitioner, the petitioner had paid only Rs. 8,155-56 Np. directly to the society and the rest were paid only presumably as the price of the yarn to Manoj Textile Mills. This is clear from the letter of Indravadan Shah dated November 19, 1960 to the society. That letter is somewhat important otherwise also, for, it directed the society to credit to the petitioner the amount stated therein and said to have been paid to Messrs Manoj Textile Mills for the yarn, and wound up by stating that the petitioner would go to Ankleshwar and personally talk over the matter to the manager of the society. This letter together with the statement enclosed therewith dated November 12, 1960 clearly shows that it was Indravadan Shah who was really managing Tarun Trading Co. and not merely looking after that concern in a friendly way in the absence of its proprietor and since he was also a partner together with his brothers in the other two concerns, it can safely be presumed that it was he who was managing all the three concerns. It was presumably because of this circumstance that on January 25, 1961, it was Indravadan Shah and not the petitioner who gave the statement to the Department which was subsequently adopted by the petitioner on January 29, 1961.

(7) This statement contained certain facts which would appear to negative the case of the petitioner as laid in the petition. The first thing that is stated there is that the petitioner company 'got manufactured' the cotton fabrics in question. Secondly, it is also certainly stated there that the petitioner company paid to the society only the labour charges and further that, these amounts paid as and by way of labour charges more or less corresponded to 'the labour cost of the society' which means that they corresponded to the labour charges paid by the society to its members. The statement admits that beyond these labour charges, no other direct payments were made to the society, for, the price of the yarn was paid by Tarun Trading Co. by means of cheques which, though drawn in favour of the society, were endorsed by the society in favour of Manoj Textile Mills. This practice was followed apparently to show that it was the society which used to purchase yarn and was entitled to include the cost of the yarn in the price of cloth payable by the Petitioner Company. This position is clear from the statement of Indravadan Shah that the society used to issue 'formal bills' including therein the price of the yarn though it was Tarun Trading Co. which used to pay for the yarn.

(8) Two facts thus emerge from the statement of Indravadan Shah dated January 25, 1961 and the aforesaid letter and the statement of account respectively dated November 19 and November 12, 1960 and admittedly written by him, namely, (1) that under the agreement between the petitioner and the society, the petitioner company was to supply yarn to the society, and (2) that the petitioner company was to pay to the society labour charges at the aforesaid rates agreed to between them. The case of the petitioner that the aforesaid rates represented manufacturing cost and not merely the labour charges is negatived by the admission in the statement of Indravadan Shah that these charges more or less corresponded to the labour cost paid by the society to its members. It would seem that it was because of these facts that Indravadan Shah had to admit in his aforesaid statement that the cotton fabrics in question 'were got manufactured' by the Petitioner Company. Prima facie, therefore, apart from the question whether the Petitioner Company in law could be said to be the manufacturer, it was the petitioner who got the goods manufactured, supplying yarn to the society and paying to the society only the weaving charges. The statement of account dated November 12, 1960 sent by Indravadan Shah along with his letter dated November 19, 1960 to the society also shows that besides the labour charges, namely Rs. 8,155-56 Np., a further sum of Rs. 172/- was paid to the society and it was admitted before us that that amount represented packing charges. This fact, though by itself a small circumstance, shows that charges other than labour charges were not included in the rates agreed to between the petitioner and the society and that the society was paid such charges, such as packing charges, separately and therefore, the aforesaid rates cannot be said to represent manufacturing charges, as the petitioner sought to make out. The statement of Indravadan Shah thus clearly establishes that the Petitioner Company got the cotton fabrics in question manufactured by the society by supplying yarn and paying to the society only the weaving charges. But to make out that it purchased the goods from the society, bills were made out which included the price of the yarn, accounts were also likewise prepared showing as if the cost of the yarn was included in those bills and cheques were drawn in favour of the society and endorsed in favour of Messrs Manoj Textile Mills in which Indravadan Shah and his three brothers were partners.

(9) The first contention raised by the petitioner company was that the cotton fabrics in question were not liable to the duty as they were exempt from such duty under notification No. 70 of 1969 dated April 30, 1969. Before we proceed to deal with this contention, it will be necessary first to consider the relevant provision of the Act and the rules. Clause (d) of Section 2 of the Act defined 'excisable goods' as meaning goods specified in the First Schedule as being subject to a duty of excise. Item 19 in the First Schedule provides for excise duty at different rates depending upon the variety of cotton fabrics. Cotton fabrics therefore are excisable goods within the meaning of the definition of 'excisable goods' in Section 2(d). Section 3, which is the charging section, provides for the levy and collection of duties specified in the First Schedule on all excisable goods which are produced or manufactured in India. Rule 7 deals with recovery of duty and provides that every person who produces, cures or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay duty or duties leviable on such goods, at such time and place and to such person as may be designated, in, or under the authority of these rules, whether the payment of such duty or duties is secured by bond or otherwise. Rule 8 empowers the Central Government to authorise exemption from duty in certain cases from the whole or any part of the duty payable on such goods. The rule therefore, postulates that the goods to be exempted are excisable goods in the first instance. Thus, cotton fabrics are excisable goods on which duty is payable at the rates prescribed in tariff Item 19. Clause (1) of the Rule 9 provides that no excisable goods shall be removed from anyplace where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in our outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form. Clause (2) that rule provides that if any excisable goods are, in contravention of sub-rule (1), deposited in, or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made by the proper officer, whether such demand is delivered personally to him. or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation. Rule 9A provides that the rate of duty and the tariff valuation (if any) applicable to goods cleared on payment of duty shall be at the rate of and valuation (if any) in force on the date on which duty is paid, or if the goods are cleared from a factory or a warehouse, on the date of the actual removal of such goods from such factory or warehouse.

(10) In pursuance of the power under Rule 8, the Central Government issued notification from time to time granting exemption on cotton fabrics, though such goods are excisable goods under tariff item 19. Though the notification relevant to the goods in question is notification No.70 of 1960 dated April 30, 1960, it would become necessary, in view of the arguments advanced before us, to glance at the previous notification issued by the Central Government. The first relevant notification is the one dated January 5, 1957 which exempted cotton fabrics described therein the whole of the duty leviable thereon under the Act. The notification exempted seven kinds of goods out of which we are concerned with the seventh item dealing with cotton fabrics 'manufactured by and on behalf of the same person in one or more factories commonly known as power-looms (with out spinning plants) in which less than fife power-looms in all are installed'. Thus, cotton fabrics manufactured by a per sin in a place where less than five power-looms are installed, as well as cotton fabrics manufactured on behalf of such a person, again in a place where less than five power-looms are installed, were exempted from duty. Item 7 of this notification shows that for the purpose of claiming exemption, it was not necessary that a person who manufactured cotton fabrics need be an owner of power-looms. The only condition required was that the goods should be manufactured at a place where less than five power-looms were installed. It was also not necessary that he must himself manufacture the goods, and it was sufficient if they were manufactured on his behalf. In both the cases, that person whether be himself manufactured or got the goods manufactured on his behalf, would be the manufacturer. It would seem that the object of granting the exemption was to benefit or give protection to a small manufacturer as against a big manufacturer, and to equalise him as against manufacturer having large scale factories and establishments with the advantages attendant upon mass production. This notification dated January 5, 1957 which gave benefit of exemption to individual manufacturers provided the goods manufactured by them were manufactured in factories which worked less than five power-looms, is still in force and has not been superseded by any subsequent notification. The next notification which is relevant for our purpose is notification No, 74 of 1959 issued on July 31, 1959 and which provided that the Central Government thereby exempted formed of owners of cotton power-looms which was registered or which might be registered on or before March 31, 1961 under any law relating to co-operative societies from the whole of the duty leviable thereon subject to the four conditions were (a) that every member of the co-operative society was exempt from excise duty for three years immediately preceding the date of his joining such society, (b0 that total number of cotton power-looms owned by the co-operative society was not more than four times the members forming such society, (c) that a certificate was produced by each member of the co-operative society from the State Government concerned or such officer as may be named by the State Government that he was a bona fide member of the society and that the number of cotton power-looms in his ownership and actually operated by him did not exceed four and did not exceed four at any time during the three years immediately preceding the date of his joining the society and that he would have been exempted excise duty even if he had not joined the society, and (d) that the exemption would be available (I) for a period ending on July 31, 1962 in respect of registered co-operative societies which had commenced production prior to the date of this notification, and (ii) for a period of three years from the date of commencement of production in respect of co-operatives which had been registered but had not commenced production, or which might be registered on or before March 31, 1961. It can be seen that this notification made a departure from the last notification and the policy underlying it, for it gave exemption for the first time to cotton fabrics manufactured by a co-operative society provided the society fulfilled the four conditions set out therein. The exemption, however, was restricted to cotton fabrics produced by a society whose members were owner of power-looms and who, in thier individual capacity, were entitled under the previous notification to exemption. The exemption thus was restricted to cotton fabrics produced by a society whose members were owners of power-looms. Since condition (c) laid down that the members must be such that they on their own account, would be entitled to exemption even if they were not members of the society, it is clear therefrom that they must be owners of the looms and that the goods must be manufactured either by them or through labour hired by them but on behalf of the society. The notification did not supersede the earlier notification dated January 5, 1957 under which, as already stated, an individual manufacturer, whether he owned looms or not, and whether he himself manufactured or got manufactured through others enjoyed exemption. Therefore, whereas the goods reduced by a society enjoy the exemption under the notification provided its members were owners of power-looms, so far as an individual was concerned it was not necessary that he owned any power-loom. The intention underlying this notification was obviously to encourage formation of co-operative societies which not only produced cotton fabrics but which also consisted of members, not only owning but having actually operated not more than power-looms during the three years immediately preceding their having joined the society. The policy was that instead of each such member operating his looms on his own, he should combine with others by forming a society which, under their amalgamated co-operative effort, should produce cloth. The insistence was that the goods for which exemption could be claimed must be goods produced by the society. This is clear not only from the operative part but also from conditions (d) under which the exemption was available for a prescribed period from the date of commencement of production by the society.

(11) Notification No. 70 of 1960 dated April 30, 1960 the notification dated July 31,1959 and in language no doubt different from the earlier notification, provided that the Central Government exempted thereby 'cotton fabrics produced on power-looms owned by any co-operative society or owned by or allotted to the members of the society' and which society was registered or which might be registered on or before March 31, 19961, from the whole of the duty leviable therein, subject to the four conditions therein setout. As rightly urged by Mr. Nanavati this notification changed the language and used by expression 'produced on power-looms' owned by a society or by its members or allotted to them, instead of the expression 'produced by a society'. Another change introduced in this notification was that whereas under the notification dated July 31, 1959 the society had to be of members who were owners of and who had actually operated power-looms not exceeding four, the present notification contemplates cotton fabrics produced on power-looms either owned by the society ort its members or on looms allotted to such members. Therefore, it is not necessary, as it was under the previous notification, that the looms must be owned by the members. The members may be persons to whom looms were allotted.

(12) The contention that was urged by Mr. Nanavati as also by Mr. Divan and Mr. Sorabji, who appeared for the petitioners in the subsequent petitions, was that (1) the change of language in this notification was deliberate and not unintentional, and (2) that the change was intended to widen the scope of the exemption with a view to foster co-operative societies and to encourage production on power-looms belonging to them or owned by the members or allotted to them or owned by the members or allotted to such members. Since the change in the language was deliberate, the argument proceeded, the exemption applied to all cotton fabrics which were produced on power-looms owned by the co-operative society or by its members or on power-looms allotted to such members and it was not relevant who produced or manufactured such fabrics, whether it was the society itself or its, members or even an outsider, the object in making the change in the language being to see that the power-looms owned by the society or owned by its members or allotted to the members of such societies did not remain idle. It was argued, a d argued strenuously, that this was the clear meaning of the words use in this notification and that where a statute or an order uses precise and unambiguous words accompanied by a deliberate in the language from the one previously used, a Court of law construing it cannot go behind the plain meaning of such words and try to find out the hidden intention of the draftsman by conjective or speculation for, the intention of the draftsman must be found from the very words used by him. Reliance was placed on a passage at page 67 in Craies on Statute Law, Sixth Edition, and the observation in Sri Ram Ram Narain Medhi v. State of Bombay, AIR 1959 SC 459, Nalinakhya Bysack. Shyam Sunder Halder, 1953 SCR 533 : (AIR 1953 SC 148) and in particular, the observation of Lord Simonds in Magot and St. Mallons Rural District Council v. New Ports Corporation, 19952 AC 189 AT p. 191 in refuting the observations of Lord Denning. These decisions no doubt lay down the rule of construction with which no one can possibly have any quarrel. Nevertheless, the notification under construction must be read as a whole and not by laying emphasis on certain words or sentences divorced from their context. Read in this manner, the notification, as the previous notification did, lays down that the exemption granted thereunder is subject to the four conditions set out therein. It will be observed that these four conditions are substantially in the same terms as in the notification of July 31, 1959. The notification as the earlier one did, insists that (a0 every member of the co-operative society has been a manufacturer of cotton fabrics on power-looms and further, has been exempted from duty for three years immediately prior to his joining the society, (b) that the total number of looms owned by the society or allotted to its members does not exceed four times the number of its members, (c0 that each member produced a certificate that the power-looms owned by or allotted to him and actually operated by him, do not exceed four and did not exceed four at any time during the three years immediately preceding his joining the society, and (d) that the exemption is to be available (I) up to July 31, 1962 for societies which have commenced production prior to the date of the notification, and (ii) for three years from the date of the commencement of production in respect of societies which, though registered, have not commenced production or which may be registered on or before March 31, 1961. These conditions, in our view, make it clear that in order to entitle a society to exemption, it must be established that every one of its members has been a manufacturer and has been exempt for three years immediately prior to his becoming the member, that he has owned or has been allotted power-looms not more than four and furthermore that he does not own and has not owned or allotted to him more than four looms, at the relevant time i.e., at the date of claiming the exemption is to operate for the prescribed period from the date of commencement of production, obviously, by the society.

(12A) No doubt, the language used in the present notification is somewhat different from that of the previous notification and Mr.Nanavati was right when he said that the change was deliberate. It would also perhaps be right to say that the change in the language was made to extend the scope of the exemption. But the question is, what does that change amount to and why had the change in the language been necessitated? Under the notification dated July 31, 1959 the goods on which exemption could be claimed were those which were produced by a society formed of owners of power-looms, each of whom under condition (a) therein was exempt from duty for three years immediately prior to his joining the society. Therefore, the society envisaged in that notification was one whose members were owners of power-looms and who as such had been exempt individually from payment of duty for three years immediately before they joined the society. The society thus was one of which the members themselves were owners of looms who had been operating those looms individually and who had then formed the society. The exemption, therefore, instead being given to them in their individual capacity, was given to the society as they had combined their manufacturing efforts by forming a society. Under the present notification, the society envisaged therein is a different type of society, wider in concept than the society contemplated in the earlier notification, for such a society can be one which owns its own looms or has members who own looms or who are allotted looms not exceeding four. Since the society now contemplated is one which owns its own looms or has members to whom power-looms are allotted, it follows that the membership of such society need not be confined to those who are owners of power-looms. Therefore, the production of cotton fabrics which would enjoy exemption can be made both by members who are owners of power-looms as also those who are not owners but to whom looms not more than four are allotted. The fact, however, that under clause (d) the exemption is made available for the prescribed period commencing from the date of production shows that the production that is contemplated is by the society and not by any outside agency. Since the notification recognises a society which has members to whom looms are allotted and such a society need not be one whose members can be only those who own looms, the goods produced on such looms, the goods produced on such looms could not be said to be goods produced by a society formed of owners of looms, as in the case of the notification dated July 31, 1959. As the scope of the society recognised bylaw new notification was widened and included societies which themselvs owned looms and whose members need not be owners but those to whom looms are allotted, a change in the language had to be made. Such a society, the goods produced by which are now exempted, could not be said to be one whose members were owners. Since the goods which are to be exempted are goods produced on looms either owned by a society or its members or allotted to its members, the expression 'goods produced on powerlooms' had to be substituted for the words 'goods produced by a society formed off owners of looms'. But the change would not mean, as suggested by the petitioners, that the looms could be exploited by outside agencies. This is clear from the conditions subject to which the exemption is made available and the fact that the very same conditions, which were part of the earlier notification, were retained is somewhat significant, for, the society which claims exemptions must have members who have themselves been manufacturer and have enjoyed the exemption in their own right under the notification of January 5, 1957, who do not own and have not owned more than four looms or to whom not more than four looms are allotted. Furthermore, the exemption is to be available for the prescribed period from the date of production which must of necessity be, production by the society through its members and not by outsiders. The construction suggested by the petitioners would not only be contrary to the notification read as a whole, but would in our opinion defeat the very purpose and the object of granting the exemption. This conclusion is to a certain extent supported by certain observations made by the Supreme Court in Orient Weaving Mills (P) Ltd. v. Union Of India, AAAIR 1963 SC 98, where the Supreme Court was called upon to decide the question whether these very notifications suffered from invalidity on account of their being violative of Art. 14 and Art. 19(1). While examining that question, the Supreme Court considered the object of and purpose of the exemption and the class of producers intended to be benefited thereunder. The Supreme Court observed that the exemption granted by thee notifications was meant primarily for the protection of petty producers of cotton fabrics, not owing more than four power-looms, from unreasonable competition by big producers. The State therefore had made a valid classification between the goods produced in bug establishments and similar goods produced by small power-loom weavers in the mofussil, who were usually ignorant, illiterate and poor and suffered from handicaps to which big establishments wee not subject. Under the notifications, exemption was available to individual weavers who employed not more than five looms on their own account. The fact that they had banded together efficiency and to take advantage of State aid should not count against them. In rule 8, therefore, there has not been excessive delegation of power to exempt. Nor were the notifications bad in so far as they exempted certain classes of persons and not classes of goods from the excise duty. The duty of excise was on the production of certain goods, but it was payable by persons producing such goods. The exemption was also with reference to such goods a came within the description of excisable goods. Certain co-operative societies had been exempted under the notifications from payment of excise duty in respect of goods produced by the weavers. They had not been exempted from the payment of personal tax, like income-tax. The exemption therefore, had reference to the same kind of tax which would otherwise have been leviable but for the exemption. Condition (c) in the notification under discussion clearly contemplates that looms might have been allotted to a person even before he became a member of a society. The production by such a member could not be production on the looms owned either by him or the society and therefore, the words 'allotted to him' had to be added. It is true that unlike the notification dated July 31, 1959, the words are 'on the power-looms' and not 'by the society', but the conditions show that the members of such society have been themselves manufacturers who own or are allotted looms and have enjoyed the exemption and furthermore, the exemption is made available for a certain period from the date when the society commenced its production. All these factors show that the exemption is in respect of goods produced by the society through its members, either on power-loom belonging to the society or belonging t the members or on looms allotted to such members.

(13) But it was argued that if the construction were adopted, it would mean the society which has not the means to purchase raw materials, such as yarn, and therefore, agrees to take such raw materials from a producer, would be debarred from the benefit of the exemption and that such a result would be contrary to the very object of notification and further-more would amount to substituting the words 'produced on power-loom' for the words 'produced by the society'. The argument in our view, suffers from fallacy, for, even where a society is furnished with raw materials, in the circumstances assumed in such a case if it is established that it was the society which produced goods and not some outsider, the exemption would still be available. It would, on the contrary, be defeating the very purpose of the notification if it were to be held that even if some outsider were to exploit the looms of the society and provide cloth, the exemption would be available so long as such goods were manufacture on looms belonging to a society or to the members or on looms allotted to the members. Considering the notification in its entirety and without attempting to conjecture or speculate about the object for which it was issued, or without attempting any modifications in the language used therein, it is clear that as compared with the previous notification the scope of exemption was enlarged so as to give the benefit of exemption to goods produced by a society through its members were themselves not the owners of looms on which the goods were produced and the looms on which they were manufactured were looms either owned by the society itself or by its members or were looms allotted to its members. Since under the notification of January 5,1957 an individual could claim exemption on goods manufactured by him or on his behalf even though he might not be the owner of the looms on which such goods were manufactured, there was no reason why the exemption on the same lines should not be given to a society consisting of members who did not own looms but to whom looms were allotted. Under the notification of July 31, 1959 such a society, whose members were not the owners but who produced cotton fabrics on looms allotted to them, could not claim exemption though the members, if thy had not joined such a society could have claimed exemption on goods manufactured by them under the notification dated January 5, 1957, it was with a view to do away with this anomaly and to widen the scope of societies who could claim exemption that the present notification was issued. The extension of the exemption necessitated change in the first part of the notification, for, cotton fabrics manufactured by a member on looms allotted to him but not owned by the society, could not be said to have been produced by the society. To include such goods for the purpose of exemption to he available to the society, the language used in the previous notification would have been inapt and therefore had to be changed. But the emphasis still was, notwithstanding the changes in the language, that the production must be by the society through its members on loom either owned by the society or its members or on looms allotted to such members. In this view, cotton fabrics which are produced or manufactured by an outsider i.e. neither by a society nor by the members of such society, cannot enjoy the exemption and would be liable to duty as prescribed under tariff item No, 19 in the First Schedule to the Act and would attract Rule 7 of the Rules.

(13A) At one stage, Mr. Sorabji, who appears for the petitioners in the two petitions after these two petitions, argued that since the notification provides for exemption, though the general rule is that fiscal statutes should be strictly construed, the provisions regarding exemption should be liberally construed and in favour of the subject and that if the Court felt that there was any ambiguity in the language used in the notification, the benefit of such ambiguity should go to the subject. The authorities cited before us, both by Mr.Sorabji and the learned Advocate General, would seem to show that different views have been held by different Courts. We, however, need not enter into that controversy as we hold, on the language of the notification itself, that the exemption given thereunder applies to goods manufactured or produced by the society through its members on looms either owned by the society or its members or those allotted to such members and not in the case of goods manufactured or got manufactured by outsiders.

(14) The next question that falls for determination is whether Rule 7, under which the duty is to be recovered, applies to the petitioner. Since that rule can only apply to one who produces and manufactures any excisable goods or who stores such goods in a warehouse, it will have to be considered whether the petitioner can be said to be either a producer or a manufacturer of the cotton fabrics in question.

(14A) Section 2(f) does not define the words 'manufacture' or 'manufacturer' but lays down an inclusive definition. What the Legislature does is to say that do manufacture mean not only what its natural meaning conveys but shall also include any process incidental or ancillary to the completion of a manufactured product. So far as salt and tobacco are concerned, the Legislature includes various process set out separately therein. Therefore, one has first to turn to the natural and plain meaning of the word 'manufacture' to find out the content of this definition. The natural meaning of 'manufacture' is to make or fabricate or to bring into existence an article or a produce either by physical labour or by power. Therefore, leaving aside salt and tobacco, the definition of the word 'manufacture' would mean making or bringing into existence an article or product by physical labour or power and would include any process incidental or ancillary to the completion of a manufactured product. The definition then lays down that the word 'manufacturer' shall be construed accordingly, which means that a person would be a manufacturer who makes, fabricates or brings into existence a product or an article by physical labour or power, including a process incidental or ancillary to the completion of such a manufactured product. The definition then goes a step further and provides that a 'manufacturer' shall include 'not only' a person who employs hired labour in the production or manufacture of goods 'but also' anyone who engages in the production or manufacture on his own account if these goods are intended for sale. There can be no doubt that from the use of words as 'not only' and 'but also' the Legislature desired to make the definition as comprehensive as possible. That is also clear from the latter part of the definition where it is provided that even a person who engaged in the production or manufacture shall also be a manufacturer for the purposes of this Act. The word 'engage', according to tits dictionary meaning, means to employ, to occupy oneself or to embark upon any business and thus has a wider connotation than the word 'manufacture'. The words 'not only' and 'but also' are used to emphasize the intention of the Legislature to includes in the definition those who engage themselves in the production or manufacture on their account of goods intended for sale.

(15) The contention of Mr. Nanavati as also of Mr. Divan and Mr. Sorabji who supported him was two-fold. They urged first that the petitioners cannot said to be manufacturers because they did manufacture the goods in question but that the societies which brought the goods into existence would be the manufacturers. Secondly, they urged that they had not employed the societies to manufacture these goods, but that the societies were in the position of independent contractors over whom they have no right of supervision and therefore, they cannot be said to be persons who had employed hired labour nor can they be said to have engaged themselves in the production or manufacture of the goods in question. The argument was that what the petitioners did was to enter into agreements with these societies whereunder the societies manufactured these goods through their members and to whom the societies paid weaving charges and they, in their turn paid to the societies at the rates agreed to between them and the societies. In this connection, Mr.Nanavati relied on two decisions, in Chintaman Rao v. State of Madhya Pradesh, AIR 1958 SC 388 and Shankar Balaji Waje v. State of Maharashtra, AIR 1962 SC 517, both of which were cases of bidi manufacturers arising under the Factories Act and where the Supreme Court has laid down the distinction between an employee and an independent contractor. On the strength of these two decisions, it was argued that the petitioner cannot be said to be an employer and the society or its members employees, that there was no contract of employment between them and that at best, the agreement between them made the society an independent contractor who, upon an order placed with it, manufactured the goods in question. Mr.Divan, while supporting Mr.Nanavati, approached the definition of 'manufacturer' in a somewhat different way and urged that we should read the definition as if it provided that a manufacturer shall be construed accordingly and shall 'in so construing' include a person who engages in the production or manufacture etc. Mr.Sorabji argued that the expression 'who employs hired labour' which means labour employed on certain wages, is used as a contra-distinction of entrustment of work to an agent or an independent contractor and therefore, in a case where there is an agreement whereunder a person engages an independent contractor to produce goods, such a person cannot be said to be a manufacturer either in the natural meaning of that word or in its inclusive sense. It was urged that the word 'employs' used in this connection must bear the same meaning usually given to it in law and must mean a person who employs labour on wages and that therefore, there must be a contract of employment between the petitioner and the society in order to make the petitioner a manufacturer.

(16) There can be no quarrel with the principles laid down in the decisions cited by Mr. Nanavati which distinguish a servant or an employee from an independent contractor. Equally, there can be no doubt that in the present case it would not be possible to say that there was any contract of service or employment between the petitioner and the society. But the question is, does that fact mean that the petitioner is not a manufacturer and does not fall within the ambit of the definition?

(16A) At one stage, we are inclined to take the view that the Legislature laid down different categories of persons who would be manufacturers within the meaning of this clause, namely,

(1)A person who manufactures i.e. brings into existence or an article either himself or through his agent or servants.

(2) A person who employs hired labour, which expression would include an independent contractor who himself hires labour. And

(3) A person who, though not falling under either of these categories engages himself otherwise in the production or manufacture of the goods in question.

But a fuller construction of the definition, it appears that such a three-fold classification would not perhaps be correct. As pointed out by the learned Advocate General, by the words 'not only' by the Legislature which defining a 'manufacturer', the Legislature lays down two categories of persons who would fall within the ambit of the definition, namely, (1) those who would be manufacturers within the natural meaning of the term 'manufacturer' and (2) those who would fall in the inclusive part of the definition where the Legislature has given an inclusive and an enlarged definition. It is clear that the Legislature was not content by making merely those persons who, on a plain meaning of the term, can be called manufacturers and therefore, by using words 'but also', an expression of emphasis, wanted to include those persons who engaged themselves in the production or manufacture of goods on their own account and which goods were intended for sale. In the first category would fall all those persons who bring about into existence or make or fabricate an article or a product, but a manufacturer in that sense does not only mean who, by his own personal labour, makes an article or a product. A person who brings into existence an article or product through the instrumentally of an agent or a servant must also be regarded as a manufacturer falling within the natural meaning of the word 'manufacturer'. An artisan for instance, who makes a product or an article is a manufacturer but does not cease to be one because he makes such an article with the aid of or through instrumentality of his servants or workmen. The Legislature having thus provided for such a category of persons then proceeds to lay down the inclusive part of the definition and in doing so, lays down that a manufacturer shall include 'not only' one who employs hired labour 'but also' one who engages in the production or manufacture etc. The words 'not only' suggest that a person who employs hired labour, meaning labour engaged or employed on hire labour, meaning engaged or employed on hire as Mr. Sorabji suggested, would be included in the first category. If that was not so and the Legislature wanted to classify persons employing hired labour separately, it would not have used he expression 'not only' but would instead have used a simple conjunctive 'and'. The words 'not only' in that juxtaposition indicate that the draftsman thought that those who employed hired labour were covered by the first category, and then the draftsmen proceeded to lay down the inclusive of the definition by emphasizing that 'not only' 'but also' those who engaged in the production etc. would be manufacturers. It is possible for a person who himself does not employ labour but gets goods manufactured through an independent contractor to say that he was not the manufacturer for he had not brought into existence an article or a product in question either himself or through his servants. To cover such a class of persons the Legislative provided the inclusive part of the definition which would include a person who does not himself employ labour but engages himself in the production or manufacture of goods though an indecent contractor. In that view which appears to be the correct construction of the definition, the petitioner would be a manufacturer within the meaning of Section 2(f).

(17) But Mr. Nanavati that the respondent has held the petitioner to be a manufacturer on the footing that he was a person who had employed hired labour, that that part of the order is not correct in law for, there was no contract of employment between the petitioner and the society and that the society was an independent contractor and, therefore, even on our construction of Section 2(f) the order would be bad, as there was an apparent error of law in holding the petitioner a manufacturer liable to pay duty under Rule 7. Considering the clear distinction in law between an employee and an independent contractor, it would not be possible to say on the facts of this case that the society or its members were the employees of the petitioner and therefore, it would not be correct to say that the petitioner manufactured the goods in question by employing hired labour and therefore would not fall in the first part of the definition. Nevertheless, it cannot be doubted that by engaging the society as the independent contractor to weave cloth for him from the raw materials supplied by him and paying only weaving charges, the petitioners did engage on his own account in the manufacture of goods intended for sale and therefore, was a manufacturer. But it was argued that if the respondent has held the petitioner to be manufacturer on one set of facts, namely that he was a manufacturer because he had employed hired of labour, it would not be permissible to us to uphold that finding on the ground that he had engaged himself otherwise in the production of goods and that such a course would be tantamount to holding him a manufacturer on a different basis and on a different set of facts to which the respondent had not applied his mind. We do not think that this is a correct line of reasoning. In the show cause notice, the case of the Department clearly was that the petitioner had got manufactured these goods through the society and that allegation was based on the admission made by Indravadan Shah on behalf of the petitioner that the petitioner had got manufactured these goods through the society. It was with reference to this allegation that the petitioner gave his explanation and argued when he appeared before the respondent. At best, therefore, the respondent can be said to have misconstrued the expression 'employs hired labour' to mean that though the society was an independent contractor, the petitioner can be said to have employed the society or its members. But it is not denied that the respondent acted with jurisdiction and it cannot also be denied that the respondent has held the petitioner to be a manufacturer in the sense that it was he whom through the society, brought into existence the goods in the question. If, therefore, the authority has incorrectly mentioned in his order a portion of the section, no prejudice is caused to the petitioner and the Court would not strike down such an order for that reason only. There is also no question of the authority having applied its mind to one set of facts and its order being upheld as correct on another set of facts. Reliance was placed on T.C.Basappa v. Nagaspa, AIR 1954 SC440, and on the basis of the observation contained therein, it was argued that the order was passed in ignorance of law and should therefore be set aside. By the Supreme Court, in A.K.Allison v. B.L.Sen, AIR 1957 SC 227, has laid down that proceeding by way of certiorari under Article 226 are 'not of course' and the High Court has the power to refuse a writ if it is satisfied that there was no failure of justice and in appeals which are argued against the orders of the High Court in applications under Article 226, the Supreme Court would refuse to interfere unless it is satisfied that the justice of the case requires it, but where it was not so satisfied, it would not interfere. See also P> Balakotiah v. Union of India, AIR 1958 SC 232 AT P. 236. Both these writ of certiorari as in the present case. The Court, therefore, would look at the substance rater than mere form and if it finds that the order has been made with jurisdiction and though there is an error a particular part of the section, the order of falls under another part of the section and no prejudice is caused to the petitioner the Court would not interfere and set aside the order. It is obvious that the only mistake that the respondent can be said to have made was that instead of saying that the petitioner go manufactured the gods in question through an independent contractor, namely, the society, he stated that the petitioner manufactured the goods by employing hired labour, i.e., the society. The correct position was that by entering into an agreement with the society, the petitioner had got the gods manufactured and thus had engaged himself in the production or manufacture of the goods in question but not by entering into a contract of employment with the society. The mistake therefore was to consider the petitioner as a manufacturer under the first category of persons rather under he second category of person falling within the definition. But that does not mean, as emphasized both by Mr. Nanavati Mr.Sorabji that that finding we arrived at on a consideration of one set of facts and that that finding is sought to be upheld on another set of facts to which the authority had not applied its mind. That contention cannot be sustained and our conclusion is that the authority was right in the finding that, the petitioner was a manufacturer with in the meaning of section 2(f) of the Act.

(18-19).

** ** ** ** ** **

No. 1054 of 1963

(20) The petitioner is this petition is the sole proprietor of Messrs. Gorhandhas and Co. carrying business as a dealer in textiles in Bombay. Under an agreement between the petitioner on the one hand and the Gandevi Vanat Uudhyog Sakhari Mandi Ltd., (hereinafter referred to as the society), the society manufactured cotton fabrics during the period between June 1959 for the petitioner on certain terms and conditions which were later reduced to writing on October 12, 1959. Under these terms the society agreed to carry out weaving work on behalf of the petitioner on payment of weaving charges fixed art Rs.00-19nP. per yard; which included expenses the society would have to incur in transporting yarn from Bombay and cotton fabrics woven by the society to Bombay. The petitioner, under these terms, was to supply yarn to be delivered by him at Bombay to the society and the society was to makes its own arrangement to bring the same to its factory at Gandevi. Under Clause 8 of the terms, it was agreed that the society would weave cloth on fifteen power-looms and the petitioner undertook to supply sufficient yarn to keep those looms running properly. Clause 11 provided that the yarn supplied by the petitioner, remaining either in stock or in process or in the form of ready-made pieces would be of the absolute ownership of the petitioner and the society, as the bailee of the yarn, undertook to take such care of it as it would normally take if the yarn belonged to it. The society also undertook to have the yarn insured against fire, theft and all other risks including transit risks and further undertook to reimburse the petitioner in case it failed to do so. The terms of the agreement, though recorded on October 12, 1959 were to be deemed to be effective from April 21, 1959, that being the date when the petitioner had sent four beams of yarn to the society and the agreement was terminable by either party by giving one month's notice. The society was a co-operative society carrying on its work at Gandevi and was registered on or before May 31, 1961,and consisted of members who owned power-looms. The society started the weaving work for the petitioner some time in May-June 1959, and supplied to the petitioner between June 1, 1959 and January 3, 1961 cotton fabrics admeasuring 3,19,460 yards. The society had obtained L-4 license as required by the Central Excise and Salt Act, 194. It is an admitted fact that the petitioner had never obtained such a license. By letters dated August 29, 1959 and October 27, 1961, the Excise Department had granted and confirmed exemption from excise duty payable on cotton fabrics manufactured by the society under the notification issued by the Central Government. It is not in dispute that between June 1, 1959 and September 30, 1959 the society carried out the weaving work on four power-looms only, though the Government had allotted to the society fifteen such power-looms, but eleven out of the fifteen power-looms allotted as aforesaid were kept under seals and were consequently not worked. On or after September 30, 1959 these eleven looms were released and the society was allowed to do its weaving work on all the fifteen power-looms allotted to it. On August 26, 1961 the exercise authorities recorded the statement of one Ghelabhai Jivanji Vashi, the manager of the society. In that statement, Vashi admitted that as the society was not conversant with purchasing sized beams and the work of selling manufactured goods, the society, under the said agreement, had undertaken to weave cloth for three concerns, namely, the petitioner, Messrs Virendra and Co., and Messrs Ajit Processers, all of Bombay, the three concerned undertaking to supply cotton yarn to the society. He also concerned that the society used to weave cloth on payment of weaving charges and that it had entered and that it had entered into agreements with these three firms upon that basis. The society worked accordingly for the three firms until January 1961 and thereafter, it started manufacturing cloth on its own and has continued since then the work of manufacturing cotton fabrics. On September 28, 1961 the authorities recorded a further statement of Vashi in which again, he conceded that the society had undertaken the work of manufacturing cotton fabrics on behalf of the aforesaid merchants of Bombay on payment of weaving charges and that the society had decided to do so until it became self-sufficient. He also stated that from May 1959 till September 1960, the society thus carried out weaving work of the petitioner on payment of weaving charges at the rate of Rs.00-19 Np. per yard and that from and after September 1960 to January 1961 the society carried on the work of the other two firms, the petitioners in the following two petitions. On September 28, 1961 the authorities also recorded the statement of one Narotamdas Vashanji Parekh, the manager of the petitioner concern, in which the manager also admitted that the petitioner had got Malmal of the width of fifty inches woven by the society on payment of Rs.00-19Np. per yard as weaving charges and that in all, the petitioner had got manufactured through the society 3,19,469 1/4 yards of Malmal. He also conceded that the petitioner had supplied the necessary yarn from Bombay and further that the aforesaid rate of Rs. 00-19 Np. per yard included expenses for transporting the yarn from Bombay to Gandevi and for transporting the manufactured cloth from Gandevi to Bombay. The manager also admitted that the petitioner had not obtained L-4 licence for manufacturing cotton fabrics, but stated that the petitioner had not done so as he was not aware that even if he got cotton fabrics woven at the society's factory he would be required to have such licence, and that the petitioner would be liable to pay excise duty in respect of the cotton fabrics so got manufactured through the society. From the records of the society the authorities also found a joint resolution passed by the managing committee and the control committee of the society on November 17, 1960 in which the said committee had clearly stated that the society was doing the work of certain merchants from Bombay on being paid weaving charges. The profit and loss account of the society for the year 1960-61 also indicated that the society had been doing two types of work, (1) weaving work for other merchants on payment of labour charges, and (2) the work of manufacturing cotton fabrics by the society itself. Thus it is clear that between June 1, 1959 and January 3, 1961 the society carried out the work of weaving from yarn belonging to and supplied by the petitioner in consideration of the petitioner agreeing to pay the weaving charges at the rate of Rs. 00-19 nP per yard and that during the aforesaid period, the society cleared 3,19,460 yards of cotton fabrics and transported them to the petitioner in Bombay. The society removed these goods and supplied them to the petitioner during the aforesaid period under bills, a list of which is annexed a Exhibit I to the petition. The bills also indicate that these goods were cleared and delivered to the petitioner from June 3, 1961. On these facts, the authorities issued a show notice dated November 18, 1961 and served the same upon the petitioner making a demand thereunder of a sum of Rs. 1,69,263-44nP. payable as excise duty. in the said notice,, under the heading of 'Particulars of demand', it was stated that the duty payable upon thee goods was Rs.1,69,263-44nP, and tat the duty was payable by the petitioner as the petitioner had got the said gods manufactured through the said society and had also got them removed from the society's factory at Gandevi without payment of duty. On January 10, 1962, the Superintendent of Central Excises, Bulsar, sent another notice to show cause why penalty should not be imposed upon the petitioner for contravention of Rule 9 of the said rules and why duty should not be charged for the cotton fabrics so removed and called upon the petitioners to produce at the time of showing cause all evidence upon which the petitioner intended to rely and to indicate in the written statements if he desired to be heard in person. Correspondence thereafter ensued between the petitioner and the authorities in consequences of which, it would appear, that the aforesaid show cause notices were cancelled and a fresh show notice dated April 16, 1962, was served upon the petitioner. In this show cause notice, it was stated that the petitioner had contravened the provisions of Rs.9 inasmuch as he had cleared without payment of duty 3,19,469 -44 3/4 yards of grey Malmi from the society's factory where they had been manufactured during the period from 1-6-19959 to 31-1-1961, and called upon the petitioner to show-cause to the Assistant Collector of Central Excises and Customs, Surat, why penalty should not be imposed upon him for contravention of R.9 and why duty amounting to Rs. 1,69,263-44nP. leviable on fabrics admeasuring 3,19,469-3/4 yards should not be recovered from him under R. 9. In the notice, it was stated that the authorities would rely upon the agreement dated October 12,1959, there bills issued by the society from 1-6=-1959 to 31-1-1961, the annual report and accounts of the year 1960-61, of the society, the statements of Vashi and of the petitioner's manager Narotamdas Parekh and the resolution referred to above dated November 17, 1962. The show cause notice dated April 16, 1962 was amended by a further notice dated April 23, 1962, where under instead of the amount of Rs. 1,69,263/- as the amount of duty payable on the said goods at the rate of 29,3 nP. per yard, the amount of Rs. 2,28,674-74 nP was demanded at the rate of basic duty at the rate of 15.5 nP and cess at 1.09 per square meter. The additional amount was demanded as the rate of excise duty payable on cotton fabrics had been enhanced from 29.3 nP. per square meter to Rs. 00-45 nP per square meter as from April 22, 1962. On May 7,m 1962 the petitioner gave his written statement in reply to the said show cause notice and thereafter on August 11, 1962 the petitioner was given a personal hearing at which he appeared by counsel and at which Vashi was examined. The impugned order was passed on November 26, 1962 in which the Assistant Collector of Central Excise and Customs Surat, found that the petitioner had operated and functioned as a manufacturer of the said goods and as such, had removed them from the society's factory at Gandevi without payment of duty and ordered that the petitioner should pay as per the aforesaid demand the sum of Rs. 2,28,574-74 nP. being the total amount of basic duty additional duty and cess on 3,66,305-66 square meter of power-loom cotton fabrics at the rate of Rs. 00-45 nP. And 1.9 p4r square meter under Rule 9 of the said rules, and levied a penalty of Rs. 250/- for contravention of rule 9. It is this order which has been challenged in this petition.

(21) The contentions raised by Mr.Sorabji on behalf of the petitioner were as follows: -

(1) that the manufacturer of these goods, on the facts stated above, was the society and not the petitioner.

(2) that the society being the manufacturer and in any event, the goods in question having been admittedly produced on the power-looms allotted to the society, the goods enjoyed exemption under the notification dated April 30, 1960.

(3) that the finding by the respondent that the petitioner had manufactured the goods by employing hired labour and was therefore a manufacturer, was wrong in law because the agreement between the petitioner and the society was not a contract of employment which brought about the relationship of master and servant or an employer and an employee, but was a contract of work and labour under which the petitioner supplied raw materials and the contractor, i.e., the society, produced the goods as in the case of a building contractor.

(4) that the respondent having arrived at this finding on one set of facts and held on such set of facts the petitioner to be a manufacturer, it would not be open to the Court to hold the petitioner a manufacturer on the ground that he would fall in the category of persons who are engaged in the production or manufacture of those goods, i.e., on a different set of facts to which the authority had not applied its mind;

(5) that in any event, the impugned order was invalid as the liability to pay duty and penalty was imposed to be imposed on the petitioner on the basis of the Act and the rules which suffered from constitutional invalidity; and

(6) that even if the petitioner was held to be a manufacturer and the goods were not exempt from duty under the said notifications, the demand was defective because (a) the Department was entitled levy the duty at the rate of 29.3 nP per square meter and not the enhanced rate of Rs. 00.45 per square meter which became operative from April 1, 1962 while the goods were admittedly removed without payment of duty from June 22, 1959 to January 3, 1961, and (b) that even on the footing that the petitioner was a manufacturer, the society having been allowed to work on only four looms during the period from June 1, 1959 to September 30, 1959 the petitioner would be entitled to exemption from the entire duty on goods produced on looms during that period by virtue of notification dated January 5, 1957.

(22) The stand adopted by Mr.Sorabji was that under the agreement, the petitioner was no doubt to supply yarn to the society, that ownership in that yarn remained all throughout in the petitioner and the position of the society was no more than that of a bailee. The society was to paid at the rate of Rs. 00-19 nP per yard for weaving cloth from out of this yarn and after the goods were ready, it was the obligation of the society to deliver the goods to the petitioner at Bombay and bear the transport charges therefor. Consequently, the position was that the society was in the position of an independent contractor having no relationship with the petitioners as between an employer and an employee. The act of manufacturing the goods was thus the act of the society and therefore, it was the society which was the manufacturer. While considering the definition of 'manufacturer' in Special Civil Application No. 751 of 1961,we have already dealt with this aspect of the question and have held the mere fact that the society was not an employee of the petitioner and the fact that the act of manufacturing was that of the society would not mean that the petitioner was not a manufacturer within the meaning of S. 2(f) of the Act. In a case where a master gets the goods manufactured through his servant, the actual act of manufacturing would be the act if the servant. Even Mr. Sorabji did not and could not master would be the manufacturer. Therefore, the mere fact that the physical act of weaving the cloth was done by the society makes no difference as it was the petitioner, who from yarn supplied by him got the cotton fabrics manufactured through the society. The real manufacturer, therefore, was the petitioner, the raw materials belonged to him and remained throughout his, the goods when produced belonged to him, his liabilities under the arrangements being only to pay to the society the agreed charges for weaving. It is true that under the agreement, the society, was to bear the transport charges in respect of yarn brought from Bombay to the society's factory at Gandevi and in respect of cotton fabrics despatched to Bombay to the petitioner. But the agreement shows that when the rate of Rs. 00-19nP was agreed between the parties, that rate included the transport charges and it was therefore, that the society had to bear transport expenses both for the yarn sent to it from Bombay and when the goods were despatched by it to Bombay to the petitioner. It appears that that was the strategy employed by the parties to conceal the fact that the petitioner was the real manufacturer and to show that the goods manufactured by the society and it was the society which removed the goods from its factory and delivered them at Bombay so that the petitioner may not be charged with the act of removing goods without payment of duty. The reasons given by us in Special Civil Application No. 751 of 1961 apply more forcefully to the facts of this case and on the basis of those reasons, we negative the contentions (1) to (3) urged on behalf of the petitioner. As regards contention No. (4) also, as held by us in Special Civil Application No., 751 of 1961,there is no question of the authority having found the petitioner a manufacturer on one set of facts and the Court holding him to be manufacturer on another set of facts to which the authority had not applied its mind. The facts on which the petitioner is held to be a manufacturer are the same and on which there is hardly any controversy between the parties. The only mistake that the authority maybe said to have made is that it used a wrong description namely, of the petitioner having employed hired labour instead of describing the society as an independent contractor. Whatever, the legal relationship between the parties was, and howsoever, it was described by the authority, the petitioner cannot cease to be a manufacturer within the meaning of S. 2(f) of the Act.

(23) Coming now to the constitutional question raised by Mr.Sorabji we may at once make it clear that though the petition has raised a number of questions. Mr.Sorabji confined his challenge only to S. 8 of the Act and Rr.7 and 9., he was also frank enough to state that his contention was based almost solely on certain observations made by the Supreme Court in K.T.Moopil Nair v. State of Kerala, AIR 1961 SC 552 at p. 559.before we proceed to examine this contention, it is necessary to acquaint oneself with the scheme of the Act and the rules. Sections 3 of the Act, which is the charging section, provides for the levy and collection, in such manner as may be prescribed, of duties of excise on all excisable goods produced or manufactured in India at the rates set forth in the First Schedule of the Act. Section 37(2)(I) empowers the Central Government to make rules inter alia in connection with assessment and collection, the authorities by whom the functions under the Act are to be discharged, the issue of notices requiring payments, the manner in which duty shall be payable and the recovery of duty not paid. Section 38 provides for the publication of rules and notifications, and the proviso thereto lays down that every such rule shall be laid as soon as may be after it is made before Parliament while it is in session for a period of thirty days, and if, before the expiry of that period Parliament makes any modification in the rule or directs that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case maybe. Rule 7, which is one of the two rules impugned in this petition, provides inter alia that every person who produces or manufacturers any excisable goods shall pay duty at such time and place and to such person maybe designated, in or under the authority of these rules, whether the payment of much duty or duties is secured by bond or otherwise. Though duty, therefore, is to be levied on goods, this rule lays down the parties from whom it is to be recovered. Therefore, the rule is not a charging rule nor does it deal with assessment. The only thing that the rule does is to provide that in the case of goods which are excisable goods, and duty is payable thereupon under Section 3 of the Act the persons therein set out are the persons from whom duty is to be recovered. Rule 9 deals with the time and the manner of payment of duty and sub-clause (1) thereof provides that no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place until the excise duty leviable thereon has been paid in such place and in such manner as is prescribed by these rules or as the Collector may require, and except on presentation of an application in the prescribed form and on obtaining permission of the proper officer on the form., there are two provisions to this rule, but we do not propose to detain ourselves on hem as they are not relevant for the purpose of this petition. Sub-clause (2) of Rule 9 provides that if any excisable goods are, in contravention of sub- rule (1), deposited in, or removed from, any place specified therein, the producer or manufacturer there of shall pay the duty leviable on such goods upon written demand made by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation. Rule 49 makes it clear that duty is payable only at the stage of removal of excisable good and not at the stage of manufacture or production. In order that the goods may not escape payment of duty, various checks are provided for in the rules. It is not necessary to go into all the rules, but it would be sufficient if we indicate a few rules showing these checks. Rule 174 requires inter alia every manufacturer of excisable goods except salt to take out a licence and not to conduct his business in regard to such goods other wise than by authority and subject to the terms and conditions of the licence granted by a duly authorised officer in the proper form. Rule 423 provides that every manufacturer who intends to manufacture excisable goods for the first time shall give notice in writing to the Collector at least fifteen days before commencing operations and shall specify therein the nature of raw materials which he intends to use. It also provides that every manufacturer of excisable goods shall give notice in writing to the Collector of his intention to stop or resume the production of such goods at least fifteen days before stopping or resuming such production, as the case may be, and it further provides that whenever there is any change in the nature of any raw material used, the manufacturer shall give notice in writing to the Collector, specifying the new materials to be used, at least fifteen days before making the change. Rule 44 requires such manufacturer to make a proper declaration of factory premises and equipment to the Collector. Rule 50 provides that even non-excisable goods are not be removed without the permission from the Collector. rule 53 requires every manufacturer to maintain a stock account in the proper from or in such other form a the Collector may in a particular case prescribe, and requires the manufacturer to enter in such account daily the weights, description and rating of all excisable goods which are manufactured or deposited in the store room or other place of storage approved by the Collector, or removed after payment of excise duty from such store room or other place of storage or from the place or the premises specified in Rule 9, and all goods delivered from the factory for export without of duty, and requires such a manufacturer to preserve such accounts and keep them available for inspection by any officers for a period of at least twelve months. Similarly, Rule 54 requires every manufacturer to submit monthly returns to the proper officer in proper form showing the quantity of excisable goods manufactured in the month the quantity removed on payment of duty from the place or premises specified in Rule 9, or from the store room or other place of storage approved by the Collector under Rule 47, the quantity removed for export without payment of duty and such other particulars as may be elsewhere prescribed or as the Central Board of Revenue or the Collector may require. Rule 55 requires that at the end of manufacturing period, or if manufacture is continuous, at the end of every quarter, the manufacturer shall sign and deliver to the proper officer a return in the proper form truly stating with respect tot the materials used in the manufacture, the weight of each description of finished goods produced and such other materials as the Central Board of Revenue or the Collector may, by general or special order, require.

(23A) It is clear that from the time that the process of manufacture is set in motions until it is finished, these rules see to it that a detailed check by the excise authority is maintained, the officers, on the basis of these statements and returns maintained by the manufacturer, knowing what goods are manufactured and what quality and description or value they are. When all these stages are passed and the goods are to be removed, a person removing the goods has to make an application under rule 52 for the clearance thereof. Rule 52 provides that when a manufacturer desires to remove goods on payment of duty either from the place or premises specified under rule 9 or from a store-room or other place of storage approved by the Collector under rule 47, he shall make application in triplicate to the proper officer in the proper form and shall deliver it to the officer al least twelve hours before it is intended to remove the goods. The officer shall, thereupon, assess the amount of duty due on the goods and on production of evidence that this sum has been pain into the Treasury, or paid to the account of the Collector in the Reserve Bank of India or the State of Bank of India, or has been despatched to the Treasury by money order, shall allow the goods to be cleared. The application for removal of excisable goods on payment of duty has to be in Form A.R.I and which requires the person who desires to remove the goods to give detailed particulars as regards the description of packages, the gross weight of the packages, the marks and numbers of the packages, the description of the goods with tariff classification, the weight or the quantity of the goods, the value thereof, the rate at which duty is payable and the total amount of duty payable thereupon. It then becomes the duty of the relevant officer to asses the rate as also the total amount of duty payable and to enter them in the assessment memorandum provided in the form, setting out therein the total number of packages, the quantity of the goods on which duty is assessed, the rate of duty and the total duty payable on those goods. If he accepts the particulars set out by the applicant, particularly as regards the description and the rate of duty payable on the goods in question there would be no difficulty and the officer would have to assess the total duty payable on the rate duty set out by the applicant and obviously, therefore, there would be no dispute between the Department and the applicant as regards the assessment or the duty payable by such an applicant. The difficulty would only arise if there is a dispute and the officer were to assess in the assessment memorandum on a scale different from one set out by the applicant in his application. In such a case, the rules provides two remedies, to the applicant. He may resort to an appeal from such assessment and then a revision, as provided by rules 213 and 214, or apply for a provisional assessment under rule 9B. That rule provides that a manufacturer, curer or owner of goods warehoused may, in cases where assessment if goods involves two or more alternative basis, request the proper officer to assess the goods provisionally at lower or the lowest of the rates of duty applicable (a) pending furnishing by such manufacturer, curer or owner of complete information as regards the value, description of quality of the goods, or if such information has already been furnished, pending supply of proof thereof, or (b) pending completion of any chemical or other test to which the goods may be subjected by such officer, and such officer may, at his discretion, direct that duty on such goods may be provisionally assessed and prescribe the time limit within which the complete information, or proof of information already furnished shall be supplied by such manufacturer, curer or owner in respect of the goods so assessed. Such manufacturer, curer or owner in that event has to execute a bond in the proper form, with such surety or sufficient security, in such amount, or under such conditions as the Collector approves, binding himself for payment of the difference between the amount of duty as provisionally assessed and that as finally assessed on receipt of complete information or proof thereof or of the results of chemical or other tests made in respect thereof. The rule further provides that when the duty leviable on the goods is assessed finally, the duty provisionally assessed shall be adjusted against the duty finally assessed and if the duty provisionally assessed falls short of or is in excess of the duty finally assessed, the manufacturer, curer or owner of the goods shall pay the deficiency or be entitled to a refund, as the case may be. No doubt, the rule gives power to the officer to make provisional assessment at his discretion, but if the officer were to refuse to allow such provisional assessment, the applicant has a right of appeal and a revision against such refusal. If the applicant does not wish to apply for such provisional assessment for some reason or the other, he can go in appeal against the assessment made by the officer under rule 52 and then in revision, if necessary. It is true that by reason of certain provisions of the Sea Customs Act having been made applicable to this Act, an appellant has to deposit the duty amount before his appeal is entertained. But the rigour of this rule is now lessened by the enactment of S.129 in the new Sea Customs Act, 1962. Section 129 of that Act provides that where the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of customs authorities or any penalty levied under this Act, any person desirous of appealing against such decision or order shall, pending the appeal, deposit with the proper officer the duty demanded or the penalty levied. The proviso to sub-s (1) of that section however provides that where in any particular case the appellate authority is of opinion that the deposit of duty demanded or penalty levied will cause under hardship to the appellant, it may in its discretion dispense with such deposit, either unconditionally or subject to such conditions as it may deem fit. This section differs from S.189 of the old Act inasmuch as the deposit is to be made only where the goods in question at the date of the appeal are not under the control of the authorities, and furthermore, even in such a case, the proviso gives discretion to the appellate authority, if insistence on deposit would cause hardship, not to insist upon such deposit. It is, therefore, clear that so long as the goods are in a warehouse and are removed therefrom and are, therefore, under the control of the authorities, the deposit of the duty amount has not be made and an appeal has to be entertained without such deposit.

(23b) The new Act came into force as from February 1, 1963. The memo of appeal in the instant case was sent to the appellate authority on February 2, 1963 and therefore, must have been received by that authority not earlier than February 2, 1963, i.e., after the Act came into force and therefore S.129 would apply. In the present case, the goods in question were not under the control of the Department, but in spite of that fact and though the goods were removed without payment of duty, there was still a right in the petitioner to apply for dispensing with the deposit amount under the proviso to S.129 (1). An application was in fact made for dispensing with the deposit, but it is clear from the record that the application was not based on the footing of any hardship but on the ground that the appellate authority was not entitled to insist upon such deposit before he entertained the appeal. The record shows that the appeal was rejected on the ground that the petitioner had failed to deposit the amount and that he had failed to produce any data to show that payment of the deposit would cause undue hardship to him. had the petitioner established that he was not in a position to deposit or that the deposit would paralyse his trading activities and thus cause hardship, there is no reason to presume that the appellate authority would have acted harshly or unreasonably and rejected his application. Not having even attempted to prove such hardship, it would not lie in the month of the petitioner to complain against the rejection of his appeal or on the failure by him to deposit the duty.

(24) Now the contention urged by Mr.Sorabji was that S. 3 of the Act and Rr. 7and 9are unconstitutional because they impose an unreasonable and excessive restriction upon the petitioner's right to trade and to hold property and thus violate the provision of Art. 19(1) (f) and (g). The way this contention was formulated before us was (1) that the Act provides no machinery for assessment of duty, (2) that it also does not lay down any procedure a to a notice to the person made liable before his assessment is made, (3) that the Act and the rules do not make any provision for hearing the objection, if any, of the person as to his liability for payment or the extent of payment, i.e., the rate of duty, (4) that there is no provision in the Act or the rules for having resources to a higher civil Court, such as a reference as provided under other fiscal statutes or a right of appeal to such civil Court, a d lastly (5) that though a right of appeal is provided for, as a result of an appellant having to deposit the duty amount, an onerous condition is imposed which renders that right illusory. Mr. Sorabji argued that the combined effect of all these factors was that the impugned S. 3 and 7 and 9 imposed an unreasonable and excessive restriction upon the petitioner's right to trade and to hold and, therefore, thee impugned provisions suffered from unconstitutionality. The five indicia upon which S. 3 and Rr. 7and 9 are assailed as being unreasonable and excessive restriction are bodily taken, as already pointed out, from the decision in Moopil Nair's case AIR 1961 SC 552 where Sinha C.J., speaking for the Court, held that with reference to S. 5A of the Travancore-Cochin Land Tax Act, 1955,as amended by the Act X of 1957,violative of Art. 19(1)(f) and as constituting unreasonable restriction on the right to hold property. Section 5A, which was inserted by the amending Act X of 1957 gave power to the Government to make a provisional assessment of basic tax payable by a person in respect of land held by him and which was still unsurveyed land, and upon such assessment, such person became liable to pay the amount covered in the provisional assessment. The Act was challenged on the grounds also in particular, on the ground of inequality and being discriminatory, thus offending Art. 14. But, for our present enquiry, we are not so much concerned with the decision qua Art. 14 as wi9ththe observations made with reference to the challenge under Art. 19. After setting out S.5A, the learned Chief justice observed that that section was also equally because it imposed an unreasonable restr5iction on the right to hold property safeguarded in Art. 19(1)(f). Section 5A declared that the Government was competent to make a provisional assessment of the basic tax payable by a holder of unsurveyed land. With respect to that section, the learned Chief Justice observed -

'Ordinarily, a taxing statute lays down a regular machinery for making the assessment of the tax proposed to be imposed by the statute. It lays down detailed procedure ax to notice to the proposed assessee to make a return in respect of property proposed to be taxed, prescribes the authority and the procedure for hearing any objections to the liability for taxation or as to the extent of the tax proposed to be levied, and finally, as to the right to challenge the regularity of assessment made, by recourse to proceedings in a higher Civil Court. The Act merely declares the competence of the Government to make a provisional assessment, and by S.3 of the Madras Revenue Recovery Act, 1884, the land-holders may be liable to pay the tax. The Act being silent as to the machinery and procedure to tbe followed in making the assessment leaves it to the Executive evolve the requisite machinery and procedure. The whole thing, from beginning to end, is treated as of a merely administrative character, completely ignoring the legal position that the assessment of a tax on person or prorerty is at least a quasi-judicial character. Again, he Act does not impose an obligation on the Government to undertake survey proceedings within any prescribed or ascertainable period, with the result that a land-holder may be subjected to repeated annual provisional assessments on more or less conjectural basis and liable to pay the tax thus assessed..... The Act thus proposes to impose a liability on land-holders to pay a tax which is not to be levied on a judicial basis, because (1) the procedure to be adopted does not require a notice to be given to the proposed assesee; (2) there is no procedure for rectification of mistakes committed by the Assessing Authority; (3) there is no procedure for obtaining the opinion of a superior Civil Court on questions of law, as is generally found in all taxing statutes, and (4) no duty is cast upon the Assessing Authority to act judicially in the mater of assessment proceedings. Nor is there any right of appeal provided to such assessee as may feel aggrieved by the order of assessment'.

(25) It will be observed that there is a sharp difference between the Travancore-Cochin Act and the present Act. The former provided that a tax at a flat rate without any regard to the nature or the quality of the land and also irrespective of whether the land was productive or not. It contained no procedure whatsoever, and left the executive to evolve such procedure as it thought best, leaving no room for the subject to take objections to the assessment and having also no provisions for a right of appeal. The Central Excise and Salt Act cannot be compared or placed on analogy with the Travancore-Cochin Act, for as already pointed out, the rules made under the Act have provided for (1) a detailed assessment, (2) the right of he assessee to raise objection, and (3) for a right of appeal in the first instance and thereafter a revision. It is true that unlike other fiscal statutes such as the Income-tax and the Sales Tax Acts, there is no provision for filing returns, but that is because the tax is of a totally different character, namely, on goods, and leviable only at the stage of removal. As already stated, the rules provide a detailed machinery for checks, right from the stage when manufacture commence until the goods are ready for removal, in the course of which the manufacturer has to file statements of raw materials used in the manufacture, of goods manufactured, their value, description, etc. when the goods are to be removed, he is required to filed an application under R.52, in which he has to set out various particulars on the basis of which the officer ordinarily would make his assessment memorandum. Just a the returns filed by an assesee under other fiscal statutes form the basis of an assessment, similarly, the particulars furnished by the manufacturer in his application under R.52 would form the basis of assessment with this difference, however, that whereas the returns under the Income-tax and the Sales Tax Acts are not checked previously and the data previously ascertained by the authorities, in the case of an application under R. 52 the details furnished therein have already been the subject matter of periodical checks by the Department. Even if there is a dispute between the manufacturer and the Department, he former, as already shown, has two remedies, namely, to ask for a provisional assessment or to resort to an appeal and a revision. Under Ss. 35 and 36 of the Act, a manufacturer has been given the right of appeal and revision against any decision or order passed by an officer either under the Act or the rules and therefore, such a person can go in appeal if the officer were to decline to exercise his discretion and refuse to make a provisional assessment. Under R. 9B, if the officer agrees to make a provisional assessment, a manufacturer has a right to furnish further information if he thinks necessary, or if all information has been furnish by him, to adduce proof in support of such information already supplied, which gives him the opportunity to lead evidence. The right to take objection against the assessment is, therefore, provided for both at the stage of assessment and thereafter by way of an appeal and a revision under Ss. 35 and 36 of the Act. Thus, the provisions impugned before us are of a different nature and not comparable with those which were before the Supreme Court in Moopil Nair's case, AIR 1961SC 552.

(26) But Mr. Sorabji urged that the Supreme Court in Moopil Nair's case, AIR SC 552 has laid down once for all true legal position is that as assessment of tax on person or property is of at least a quasi-judicial character. The learned Advocate- General, on the other hand, contended that the observations made by the Supreme Court in that case were with reference to the nature of the tax and the particular provisions of that Act and in particular those S. 5A of the Act. He relied upon Glaxo Laboratories (India) Private Ltd v. A.V.Venkateswaran, 61 Bom LR 1: (AIR 1959 Bom 372), where, on the provisions of the Sea Customs Act, 1878which are somewhat similar to those in the Act before us, the High Court of Bombay drew a distinction between the provisions which provided for assessment and those which provided for confiscation, payment of duty in lieu of confiscation and penalty, and held, after examining both the English and the Indian decisions, that the assessment order under S.87 of Sea Customs Act was an administrative order whereas the order regarding confiscation and penalty was quasi-judicial order. Mr. Sorabji, however, disputed the correctness, of the Bombay view, in view of the observations of the Supreme Court in Moopil Nair's case, AIR 1961 SC 552. But there is a clear distinction between an assessment under R.52 and a demand under R. 9(2). The impugned order is obviously not an order under R. 52but an order under 9(2) which is a provision contemplating a situation different from the one under R.52 and the order made under R.9 (2) would be a composite order of demand for duty and penalty for removal of goods. In the case of an assessment under. 52, the goods are removed and though assessment maybe made, the person liable to pay duty does not become liable merely because an assessment is made, but only when the goods are removed and then at that stage a demand is made for payment. In case of an order under R. 9(2), there is no assessment as under R. 52, for R.9 (2) is on the footing that the goods in question are already removed without payment of duty and in contravention of R.9 (1). Since the goods are removed without an application under R.52 having been made, there can obviously be no assessment in the sense of an assessment under that rule. What the officer, therefore, does is tat when he finds that goods are removed without payment of duty, he makes a demand for the duty leviable on such goods, on such information he may have, he has the power to levy penalty and order confiscation of goods. The proceedings thus under R. 52 and R.9 (2) are of a totally different nature.

(27) That being so and the impugned order in this petition being under R.9 (2). Mr. Sorabji has to assail R.9 (2) on the ground that its provisions violate Art. 19(1) (f) or (g) and not the provisions as to assessment under R.52. A petitioner prejudicially affected by an order which is not an order under R. 52 cannot in the abstract approach the Court and challenge its validity on the mere ground that though the order affecting his right of property is passed under another provision, the Act contains some other provisions which suffer from constitutional infirmity.

(28) Looked at from this point of view, much of the force of Mr.Sorabji's argument would be lost and the five indicia pointed out in Moopil Nair's case, AIR 1961 552 would not apply, Section 3 which is challenged is a charging section and merely lays down that excise duty will be chargeable on excisable goods as specified in the First Schedule. Rule 7 merely provides that the persons specified therein are the persons from whom duty has to recovered. Neither S.3 nor R. 7 thus has anything to do with assessment or collection of duty. The only ground of challenge being that neither the Act nor the rules lay down any machinery for assessment, notice, objection to such assessment, right of appeal untrammeled of any onerous conditions, it is difficult to appreciate the provisions of S.3 or R.7 can be assailed on the grounds when they do not deal with assessment or collection.

(28a) Then remains R.9 for consideration. The first clause of R.9 provides that no excisable gods shall be removed from any place where they are produced, cured or manufactured etc., whether for consumption, report or manufacture of any other commodity in or outside such place unless excise duty leviable thereon has been paid at such place or such manner as it is prescribed by the rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining permission of the proper officer on the form. This clause only men as that no person shall remove the goods from any of the place mentioned in this art of the rule unless an application under R.52 is made in the form prescribed thereunder and an assessment under that rule is made and duty so assessed is paid and permission to remove them is granted. The first clause of the rule, therefore, lays down prohibition against without payment of duty and has nothing to do with assessment which, as we have more than once said, is made under R.52.There are provisions to the first part of the rule providing for case where goods can be removed without payment of duty, but they have nothing to do with assessment or the questions raised by Mr.Sorabji. Clause (2) of R.9. is the provisions under which the impugned under which the impugned order has been made. Let us, therefore, examine its provisions to see if they suffer from any unconstitutionality. Clause (2) provides that if any excisable goods, in contravention of clause (1) are deposited in or removal from any place specified therein, the producer or manufacturer shall pay duty leviable on such goods upon a written demand made by the proper officer and shall be liable to a penalty which may extend to two thousand rupees and such goods shall be liable o confiscation. Clause (2) clearly is a penal provision making a producer or manufacturer liable to duty and confiscation of goods removed in contravention of the ban laid down in the first clause. It will be observed that the liability to any duty leviable on the gods under clause arises from two factors, (1) an illegal removal thereof, and (2) consequent thereupon the authority making a demand of duty chargeable thereon. There is no assessment on these goods provided in this part of the rule and there can be none because the goods are not there to be assessed as they are in fact surreptitiously removed without an application under the rule 52 having been made and without any assessment or payment of such assessment and without the permission to remove having been obtained. Therefore, the case contemplate under rule 9(2) is one where there can be no assessment. It is a case on the other hand where the authority, discovering that the goods have been removed without payment of duty makes a demand of duty leviable thereon from such information as he might have collected, and which empowers him to impose penalty and to order confiscation of the goods.

(29) It is true that neither rule 9 nor any other rule provides from any machinery for notice, assessment of duty or procedure under which the producer or the manufacturer can raise objection, and therefore, it would at first sight appear to contain arbitrary powers conferred on the authority. But S. 33 of the Act in express terms provides that where, by rules made under the Act anything is liable to confiscation or any person is liable to a penalty, such confiscation or penalty may be adjudged by the officers specified there in Section 33 occurs in Chapter VI which is headed as 'Adjudication of confiscation and penalties'. There is thus in clear terms a duty to adjudge cases of confiscation and penalties by a judicial process and the function is clearly judicial or at lest quasi-judicial function and therefore subject to the principles of natural justice, even though the rules may not provide a procedure and a machinery for the determination of such questions. But there is no challenge to the orders in question in this petition and in the petitions following this petition on the ground that the principles of natural justice were violated. The petitioner was served with a notice to show cause. He filed his written statement and was given a personal hearing when he was represented by counsel, and I was then that the respondent passed the impugned order. It is, therefore, clear that after the authority makes a demand under rule 9(2) the producer or manufacturer who has removed the goods in contravention of clause (1) of he rule has her opportunity to raise an objection either on the ground that he is not liable or on the quantum of duty and that objection has to be heard consistently with the principles of natural justice. It is equally clear that it is only when a demand is made under this part of the rule that the liability to pay arises and not otherwise. Therefore, the right to hold property, as safeguarded under Art. 19(1) (f) ad (g) is affected as from the time of the demand is made, But since the statute gives a right to object to such a demand and in express terms provide that the function under rule 9(2) is a judicial or a quasi-judicial function, it would not be possible to urge that such a restriction is either arbitrary or unreasonable or excessive. In any event, the provision cannot be assailed on the ground that it is unreasonable on the ground that there is no machinery or procedure provided for in the rule, because S. 33 of the Act provides in so many terms that though no such procedure or machinery is provided for, the function is subject to a judicial process and to the principles of natural justice.

(30) As we have seen, Ss. 35 and 36 provide for a right of appeal in the first instance and then a revision. It is true that the appellant is required to deposit the duty amount before his appeal can be entertained. But after S.129 of the new Sea Customs, 1962 came into force, it would be no longer possible to contend that the right of appeal is illusory as an onerous obligation has been imposed upon an applicant causing him hardship and making the right impossible to exercise. As already observed, under S.129 if the goods are under the control of the customs, no duty amount has to be deposited and even in cases where they are not, the proviso to the section empowers the appellate authority to dispense with the deposit. If the appellate authority declines to exercise this power, the party concerned has a right to go in revision under S. 36. The petitioner filed an appeal but declined to deposit the duty amount. The correspondence shows that the petitioner merely expressed his incapacity to deposit the duty amount without attempting to establish at any stage such incapacity or the Lordship it would cause to him by paralysing his business. No materials at any time were placed before the appellate authority to show such undue hardship. Even in the memo of appeal, no attempt was made to furnish any data from which his alleged incapacity to deposit could be deduced. Even when the appeal was dismissed on the ground of failure to deposit, the petitioner did not go in revision challenging the order. In Chaturbhai M.Patrel v. Union of India, AIR SC 424 though the challenge was to sections 6 and 8 of this Act and the rules made thereunder and the goods in question were tobacco, the situation was somewhat analogous to the one before us. The petitioner there was a dealer in tobacco and owned a private bonded warehouse and held licence for the same. The petitioner's warehouse was checked by the excise officer who finding some irregulaity, sealed the warehouse and subsequently took possession of the registers and other documented. Thereafter, the officer removed certain bags of stems of tobacco from the warehouse and stored them in some other place. The petitioner made a representation against these orders to the Collector of Central Excises and some correspondence ensued between them thereafter to show cause why penalty should not be imposed upon him for contravention of certain Central Excise Rules and why the aforesaid bags should not be confiscated. Finding the charges against the petitioner proved, the Collector ordered confiscation of the bags imposed a fine of Rs.150/- and the duty leviable thereon in lieu of confiscation. The appeal taken to the Central Board of Revenue was dismissed as the petitioner refused to deposit the penalty of Rs. 2000/- and revision to the Central Board of Revenue was also dismissed for the same reason. The petitioner raised three contentions, namely, that sections 6 and 8 were beyond the; legislative competence of the Central Legislature under the Constitution Act, 1935, that even if they were within the legislative competence, they imposed an unreasonable restraint on the petitioner's right to trade in tobacco and that the orders passed by the Collector were ultra vires the Act and the rules made thereunder. An argument similar to the one advanced before us was also raised there. Dealing with the argument that the restriction imposed under the impugned sections of the Act and the rules were unreasonable and not saved by Article 19(6) as the rules did not lay down any machinery for notice of taking evidence before an order for penalty or confiscation was made, the Supreme Court stated that the power to order confiscation and impose penalty being judicial functions, the Tribunal had to act judicially, and though no procedure maybe provided for notice or for objection by the aggrieved party, such a Tribunal must conform to the principles of natural justice. The Supreme Court added that

'there is no dispute that in the instant case there was no breach of this rule. Not only this there is a right of appeal and a revision is also provided and both these remedies the petitioner availed himself of this ground must also fail'.

(31) To sum up there is a clear difference between proceedings for assessment under rule 52 and the proceedings by way of penalty under rule 9(2). The former proceedings arise when an application is made in the prescribed form for removal of excisable goods. The prescribed form for such an application requires details of various kinds of to be filled in by the producer or the manufacturer and the officer who makes the assessment. The very nature f the tax is such that no elaborate procedure would be possible. Since duty is payable only at the stage of removal, the question of its payment does not arise till an application is made for the removal of the goods. Therefore, instead of a notice to file the returns as in other fiscal statutes, the party who applies for removal is called upon to furnish details in his application on which the authority is enabled to make assessment. On such assessment, as already stated the applicant ha two remedies if he is aggrieved, under rule 9B demanding provisional assessment in which case he has a right to give further information or to adduce proof of the information already furnished by him, or to go in appeal. As held by this Court in Chandulal Jetjalal Jayaswal v. State of Gujarat, ILR (1964) Guj. 96 at pp. 135 to139: (AIR 1964 Guj 59 at pp.73 to 75) the right of appeal, provided it is not hollow or farcical, saves the administrative power or the function from being an unreasonable restriction. The fact that there is a provision for filing such an application with the details filled in by the producer or the manufacturer, coupled with the fact that there are provisions in the Act and the rules enabling such a party to demand provisional assessment, entailing a right to adduce evidence, and the right of appeal and revision, clearly shows that the ratio laid down in Moolpil Nair's case AIR 1961 SC 552 cannot apply to the Act and the rules before us, The proceedings under rule 9(2), on the other hand, are clearly judicial or at least quasi-judicial proceedings, and though the rules do not provide for an elaborate procedure, still they have to be in conformity with the principles of natural justice. That being so, it is impossible to challenge section 3 or 7 and 9 on the ground of their being unreasonable restriction to the rights to hold property or to carry on trade to the right to hold property or to carry on trade or business. The challenge to the constitutionality of thee provisions must, therefore, fail.

(32) Mr.Sorabji then argued that assuming that these provisions are valid and assuming also that the petitioner is the manufacturer and the goods in question are excisable goods on which duty is leviable, the demand for duty under rule 9(b) having been made three months after the goods were removed and they because liable to duty, the demand was time-barred under rule 10 and therefore, it was beyond the jurisdiction of the respondent to make such a demand and pass the impugned order. In our view, rule 10does not apply for it applies only to cases set out therein. The rule postulates that there has been an assessment which has resulted in short levy through inadvertence, error, collusion or misconstruction on the part of an officer or through mis-statement by the owner as to the quantity, description or the value of such goods on the part of the owner, or after such duty or charges are levied they have been wrongly refunded. In such cases the person who is liable to pay such duty or charges which are so short-levied or wrongly refunded has to pay the deficit or the amount so refunded on a demand made therefor within three months from the date of on which the duty or the charge was paid or adjusted, in the owner's account-current, if any, or from the date of refund. The demand made in the instant case -was not found on the ground of short-levy or refund as envisaged by this rule on an assessment having already been made. The demand in the present case was made under rule 9(2) on the contravention of clause (1) of that rule i.e., on the goods having been removed clandestinely without there having been an assessment and with out the duty chargeable on them having been paid. No question of the demand being time-barred can, therefore, arise and rule10 clearly has no application.